The U.S. Dollar is rallying this morning based on global market assessments that conclude risk-off sentiment is merited.
Overview
The Fed is sounding hawkish and willing to taper, meanwhile, China signals that it is dealing with multiple challenges that include energy use, and there are idiosyncratic factors negatively impacting other regions of the world.
If China is feeling down, it can translate into the global recovery hitting the brakes at a time when looking back at Q3 should be an incentive to get things moving back on track. While the Fed sounds ready to let the economy ride with less aid, two Fed regional presidents felt the urge to resign as their financials are under heavy scrutiny for money made off of some trades while the Fed exercised unprecedented emergency quantitative easing.
According to Bloomberg, the buck is riding a five-week high against its G-10 peers as fear grabs a stronghold of the market. Starting Q4 with a debilitated China and a newly elected leadership in Europe will be interesting as the buck looks to maintain strength. Volatility is high and anything could happen to close the year.
What to Watch Today…
- No major economic events scheduled for today
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EUR ⇓
The Euro remained down as the results of German elections produced a situation in which two key parties, the Social and the Christian Democrats, will need to work together in a coalition with Greens and other minor parties. No one has a dominant hold of power, which means the government will be formed based on alliances and promises to work together. Yikes! This represents quite a change for German lawmaking, but the Euro-zone’s largest economy will have to make it work.
The European Central Bank will be ready to start shedding away some of its emergency QE purchases per President Christine Lagarde, who spoke about central bank thinking yesterday. Expect movement as we navigate through plenty of items next few months for the shared currency.
GBP ⇓
Sterling is trading at its weakest level since January as a negative rally of over 1.0% occurred at the time of writing. It looks like the energy crisis in the U.K. is affecting all kinds of economic activity and it is getting worrisome as the government suspended competition rules and launched tankers out there themselves to aid in the shortage. There is a growing belief that this is yet another unwanted result from exercising Brexit as energy trade has also been damaged as the relationship between the two regional partners declined.
The Bank of England thinks it will hike interest rates sooner rather than later, but Governor Andrew Bailey warned QE will not be reduced necessarily. Ultimately, the U.K. looks to be handling many problems and this is being reflected in the currency’s poor run lately.
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